South Korea-Central America trade agreement goes into effect

South Korea’s free trade agreement (FTA) with El Salvador, Nicaragua, Costa Rica, Honduras and Panama goes into full effect today.

Under the deal, South Korea and Central America agreed to eliminate tariffs on 95% of goods made by each side within the next ten years. The deal also provides Korean companies such as KOGAS and POSCO with opportunities to cooperate with the Central American governments on major energy and infrastructure projects.

While Asia’s fourth-largest economy diversifies its export portfolio, Korean consumers will gain access to agricultural products and consumer goods free of tariffs. In exchange, Central American economies will gain access to vehicle parts, medicines and industrial components related to the fourth industrial revolution such as artificial intelligence and e-commerce.

Expect the FTA to provide South Korean companies with a competitive edge in Central America, partially alleviating the region’s dependence on China. Moreover, after South Korea joined the Central American Bank for Economic Integration as an extra-regional member, expect a further reinforcement of socio-economic projects in infrastructure and new tech. The new agreement will likely ease COVID-19-induced protectionism in the region, contributing to a commercial recovery for Central America and accelerating South Korea’s economic growth.